KPMG Commodity Insights Bulletin – Chromite
Total Page:16
File Type:pdf, Size:1020Kb
KPMG commodity insights bulletin – chromite November 2018 Introduction This bulletin is part of a series focusing on key mining commodities. Each bulletin aims to provide insights into trends within different commodity sectors. Specifically, this bulletin provides an outlook on chromite, including recent Commodity outlook macroeconomic and geopolitical developments. A jurisdictional overview of chromite is presented for the most relevant geographies. The market forecast of stainless steel, the principal end product for chromite, is also Chromite discussed. Actual and forecasted pricing are included, as well as key drivers for supply and demand of ferrochrome and chrome ore. Finally, recent M&A – Chromite is the commercial name of activities are highlighted to assess recent market movements. iron chromium oxide (FeCr2O4), a mineral comprised of chromium and Summary iron oxide that is naturally found in the – China’s market slowdown in 2015 reduced stainless steel demand and earth’s mantle. When extracted, it is in turn impacted closely related commodities including ferrochrome and referred to as chrome ore. chrome ore. Since then, the Chinese demand for stainless steel has – Chromite is crucial for the production recovered. South Africa continues to supply the majority of chrome ore of ferrochrome, an alloying agent to meet global stainless steel demand. in manufacturing stainless steel. – It is expected that the demand for stainless steel will see steady growth Chromite provides the corrosive over the next 5 years, but less than the previous 5 years. As chrome ore resistance properties in stainless and ferrochrome are inputs to stainless steel, it is expected they will also steel, making it an ideal material see steady growth over the next 5 years. for use in a variety of industries. – In the short term, China is expected to continue playing a dominant role in the supply and demand of stainless steel. In addition, China’s commercialization of integrated nickel pig iron offers a cheaper substitute of pure nickel, in turn lowering the cost of stainless steel, which may be influencing market prices and tilting the global market toward Chinese production. When chromite, the mineral, is extracted from Figure 1: Stainless steel production process the earth’s mantle, it is referred to as chrome ore. Chrome ore is crushed, screened, jigged Chromite is a mineral found in the into chrome concentrate and then smelted into Chromite Earth’s mantel. ferrochrome. Ferrochrome, with nickel, is then processed into stainless steel. The processing of chromite is depicted in Figure 1. As chrome ore, Mined ferrochrome and stainless steel commodities are closely linked, their pricing, demand, and consumption follow similar tends. These are described herein. Chromite that is economically viable is mined and referred to as Chrome ore is essential for the production of Chrome Ore chrome ore ferrochrome. Ferrochrome, in addition to nickel, is vital for stainless steel production. Ferrochrome production accounts for more than 95 percent Crushed and processed of global chrome ore consumption1.Similarly, stainless steel production accounts for more than 80 percent and 70 percent of ferrochrome 2 and nickel consumption, respectively . Hence, Chromite About 95 percent of chrome ore stainless steel is the major driver for demand is used to make ferrochrome.1 and pricing of ferrochrome and chrome ore Concentrate commodities 3. China has driven stainless steel production over Smelting (high temperature reduction) the past decade. In 2017, China reached 53 percent market share, as shown in Figure 44. China has tapped into easily accessible chrome ore imports to increase ferrochrome production Alloy of iron and chromium. in order to meet its increasing domestic needs Ferrochrome of stainless steel, driven by the construction industry. Increased ferrochrome production has Ferrochrome and nickel are used been achieved by building new furnaces and as base materials in manufacturing switching furnaces previously used for other stainless steel alloys to ferrochrome. In the recent past, China overtook South Africa as the world’s leading Over 80 percent of the world’s ferrochrome producer 5. Stainless Steel ferrochrome is utilized in the production of stainless steel.2 1 ‘Ore Processing’, ICDA, 2011, Page 1, http://www.icdacr.com/story-of-chrome/what-is-chromium/discover-chromium/ore- processing.pdf 2 ‘Ore Processing’, ICDA, 2011, Page 2, http://www.icdacr.com/story-of-chrome/what-is-chromium/discover-chromium/ore- processing.pdf 3 Commodities Comment, Macquarie Research, December 2017, Thomson One 4 Commodities Compendium, Macquarie Research, March 2018, Thomson One 5 ‘South Africa crucial to global chrome supply, Chromium 2017 hears’, Mining weekly, November 2017, http://www. miningweekly.com/print-version/south-africa-crucial-to-global-chrome-supply-chromium-2017-hears-2017-11-10 © 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firms vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Chromite market overview by geography South Africa Chromite reserves are proven deposits that are economically South Africa is the world’s largest source of chromite. feasible for extraction. Chrome ore refers to mined chromite Historically it has accounted for approximately 72 percent of reserves. Similar to other commodities, the amount of global reserves, as shown in Figure 2. As a result of South reserves mined is dependent on a variety of factors including Africa’s abundant chromite reserves, it has well developed but not limited to; commodity pricing, government taxes infrastructure and technology allowing it to be one of the and policies, available technology and labor expertise, and lowest-cost chrome ore producers in the world. In 2016, dependability of supply chain infrastructure. these advantages allowed South Africa to produce 49 percent of the world’s chrome ore, as shown in Figure 3. Roughly half Figure 2: Chromite reserves by country6 of chrome ore that is produced in South Africa is exported Other for smelting into ferrochrome which is then processed into 8 Finland 9% stainless steel . 2% Kazakhstan Zimbabwe 5% Zimbabwe is historically the second largest location for chromite reserves, accounting for approximately 12 percent of Zimbabwe the global chromite reserves. Zimbabwe chrome ore production 12% has increased in recent years following domestic changes to economic and energy policy. In June 2015, the government lifted a ban on chrome exports that had been in place since 2011 and eliminated a 20 percent export tax to help the sector. South Africa 72% The original intent of the prior ban was to increase the smelting of chrome ore into ferrochrome in Zimbabwe. Instead chrome Figure 3: Chrome ore produced by country7 stockpiles grew because of the lack of smelting capacity, high production costs and power shortages. The government Other has also increased its royalty from 2 percent to 5 percent on 14% chrome but subsidizes electricity tariffs for chrome processing9. As a result, Zimbabwe’s chrome exports have increased. Turkey Between January to September 2016 chrome concentrate 9% South exports were 100kt and in the same 2017 period exports Africa increased to 385kt10. 49% Kazakhstan Kazakhstan Kazakhstan accounts for 5 percent of global reserves. In 18% recent years, Kazakhstan has taken steps to attract mining investments in order to increase its supply of chrome ore, India which now accounts of 18 percent of the global supply. 11% For example, in December 2017, the government adopted legislation to replace regulations that had governed mining- Note others includes: Turkey (0.9%), India (0.9%), related operations since 2010. The new code is expected Russia (0.5%), Brazil (0.2%), and others (6.9%)South Africa to attract investments from foreign mining and exploration companies since the legislation, procedures and practices within the country have been simplified11, 12. 6 Stainless Steel in Figures, ISSF, 2015, http://www.insg.org/docs/issf_stainless_steel_in_figures_2015_english.pdf 7 Mineral Commodity Summaries, U.S. Geological Survey, Published January 2018, Page 2, Mine Production Data from 2016, https://minerals.usgs.gov/minerals/pubs/commodity/chromium/mcs-2018-chrom.pdf 8 Annual Report, Tharisa PLC, 2017, Page 27, http://www.tharisa.com/pdf/investors/annual-reports/2017/annual- report-2017.pdf 9 ‘Press Statement On The Lifting Of The Ban On Export Of Chrome Ore’, Ministry of Mines and Mining Development, June 2015, http://www.mines.gov.zw/?q=press-statement-lifting-ban-export-chrome-ore 10 ‘Chrome exports to drive mineral earnings’, The Source, October 2017, http://source.co.zw/2017/10/chrome-exports-to- drive-mineral-earnings-mmcz/ 11 ‘Kazakhstan Adopts New Subsoil Use Code’, Lexology, January 2018, https://www.lexology.com/library/detail. aspx?g=3b6ff123-528a-425e-9447-0fd3b8f86fed 12 ‘Legal Reforms in the Kazakhstan Mining Sector’, Michael Wilson & Partners, January 2018, http://mwp.kz/presentation/ legal-alerts/legal-reforms-in-the-kazakhstan-mining-sector/ © 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG